Archive for April, 2014

We started talking about overtime, at least for just a second, in the very first substantive post in this series. Remember:

Section 7 of the FLSA, 29 USC §207 says:

(1) Except as otherwise provided in this section, no employer shall employ any of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed. The amount of money an employee should receive cannot be determined without knowing the number of hours worked. . . .

And again, like it has over and over during this series, this general rule raises a whole bunch of questions. We have already talked about the employer and the employee and employ and that stuff. Now we are going to talk about the workweek and the regular rate which are the basis for how you have to pay overtime. Some preliminary stuff first. The first 7 regulations under this part deal with general stuff and interpretations and the interrelationship between the FLSA and some other laws, and we are only going to talk one of these regulations. That is 29 CFR § 778.5 which is entitled “Relation to other laws generally.” This section says:

Various Federal, State, and local laws require the payment of minimum hourly, daily or weekly wages different from the minimum set forth in the Fair Labor Standards Act, and the payment of overtime compensation computed on bases different from those set forth in the Fair Labor Standards Act. Where such legislation is applicable and does not contravene the requirements of the Fair Labor Standards Act, nothing in the act, the regulations or the interpretations announced by the Administrator should be taken to override or nullify the provisions of these laws. Compliance with other applicable legislation does not excuse noncompliance with the Fair Labor Standards Act. Where a higher minimum wage than that set in the Fair Labor Standards Act is applicable to an employee by virtue of such other legislation, the regular rate of the employee, as the term is used in the Fair Labor Standards Act, cannot be lower than such applicable minimum, for the words “regular rate at which he is employed” as used in section 7 must be construed to mean the regular rate at which he is lawfully employed.

And there are some important concepts in this little section of the regulations. One, we have already talked about when we were discussing the minimum wage. If there is a state law that provides for a higher minimum wage, you pay the higher minimum wage. Same thing applies when we talk about overtime. You see, the basis for paying overtime is the employee’s “Regular Rate.” And as you can see above:

Where a higher minimum wage than that set in the Fair Labor Standards Act is applicable to an employee by virtue of such other legislation, the regular rate of the employee, as the term is used in the Fair Labor Standards Act, cannot be lower than such applicable minimum, for the words “regular rate at which he is employed” as used in section 7 must be construed to mean the regular rate at which he is lawfully employed.

Id. (emphasis added).

So don’t forget as we go along, and I am reasonably sure I have said this in other posts, whenever there is a state law that provides the employees with more protection than the federal law does, you apply the state law to that particular issue. Our friends in California, this is especially important for you!

Now let’s talk a bit about the maximum hour provisions. According to 29 CFR § 100:

Section 7(a) of the Act deals with maximum hours and overtime compensation for employees who are within the general coverage of the Act and are not specifically exempt from its overtime pay requirements. It prescribes the maximum weekly hours of work permitted for the employment of such employees in any workweek without extra compensation for overtime, and a general overtime rate of pay not less than one and one-half times the employee’s regular rate which the employee must receive for all hours worked in any workweek in excess of the applicable maximum hours. The employment by an employer of an employee in any work subject to the Act in any workweek brings these provisions into operation. The employer is prohibited from employing the employee in excess of the prescribed maximum hours in such workweek without paying him the required extra compensation for the overtime hours worked at a rate meeting the statutory requirement.

Id. (emphasis added).

So what is the prescribed maximum? Well, section 7 of the Act above says 40 hours in a workweek and so do the regs. 29 CFR § 101 says:

As a general standard, section 7(a) of the Act provides 40 hours as the maximum number that an employee subject to its provisions may work for an employer in any workweek without receiving additional compensation at not less than the statutory rate for overtime. Hours worked in excess of the statutory maximum in any workweek are overtime hours under the statute; a workweek no longer than the prescribed maximum is a non-overtime workweek under the Act, to which the pay requirements of section 6 (minimum wage and equal pay) but not those of section 7(a) are applicable.

So let’s get one thing out of the way right now. Nothing in the Act sets a maximum on the number of hours you can work your employees in a workweek. As long as the employee is 18 years old or older, work them 100 hours in the week if you want. But, unless they are exempt under one of the exemptions we will talk about in the coming weeks, you have to pay them overtime. And in this case overtime is time and one-half of the regular rate. Not double time, time and one-half. Now, and I said this when we started today and I said it when we were talking about breaks and I’m going to say it again, LOOK OUT FOR STATE LAWS, they may provide more protection. And, go ahead and work your employees this hard and see how long they stay your employees. I’m just sayin’. And there is a reg that even says that:

Since there is no absolute limitation in the Act (apart from the child labor provisions and regulations thereunder) on the number of hours that an employee may work in any workweek, he may work as many hours a week as he and his employer see fit, so long as the required overtime compensation is paid him for hours worked in excess of the maximum workweek prescribed by section 7(a). The Act does not generally require, however, that an employee be paid overtime compensation for hours in excess of eight per day, or for work on Saturdays, Sundays, holidays or regular days of rest. If no more than the maximum number of hours prescribed in the Act are actually worked in the workweek, overtime compensation pursuant to section 7(a) need not be paid. Nothing in the Act, however, will relieve an employer of any obligation he may have assumed by contract or of any obligation imposed by other Federal or State law to limit overtime hours of work or to pay premium rates for work in excess of a daily standard or for work on Saturdays, Sundays, holidays, or other periods outside of or in excess of the normal or regular workweek or workday. (The effect of making such payments is discussed in §§778.201 through 778.207 and 778.219.)

29 CFR § 778.102.

And doesn’t that make some important points: Under the FLSA overtime is based on 40 hours in the workweek. Not 8 hours in a day or Saturday or Sunday work or working on holidays. If you do any of those, good for you, but it is extra under the FLSA. You get to take credit for it, but it is extra. (don’t forget state law . . . . again.)

April 11th, 2014 Comments Off on Dollar Dollar bills y’all. Wage Payments under the FLSA.

So the first thing you should notice when we get into this is that the numbers of the regulations have changed. We are now in Part 531, or the regs entitled “Wage Payments Under the Fair Labor Standards Act of 1938.” What? Do we really need a whole “Part” to talk about wage payments? Pay the wage, what’s the issue? And generally, you are right, for most employers there is no issue. In fact, the regs say:

(a) Standing alone, sections 6 and 7 of the Act require payments of the prescribed wages, including overtime compensation, in cash or negotiable instrument payable at par. Section 3(m) provides, however, for the inclusion in the ‘wage’ paid to any employee, under the conditions which it prescribes of the ‘reasonable cost,’ or ‘fair value’ as determined by the Secretary, of furnishing such employee with board, lodging, or other facilities. In addition, section 3(m) provides that a tipped employee’s wages may consist in part of tips. It is section 3(m) which permits and governs the payment of wages in other than cash.

29 CFR §531.27.

Generally, we are going to pay employees in cash, but that hasn’t always been the case. In fact, some companies used to pay in something called “scrip.” It was essentially Monopoly money, but don’t worry, the company store will take it. And that isn’t just ripe for abuse is it? In fact, the abuse used to be so bad that people used to write songs about it. Anybody remember the song 16 Tons? A guy named Tennessee Ernie Ford sang it. Don’t remember him? Johnny Cash sang it too. And the regulations recognize that potential for abuse and prohibit it: “Scrip, tokens, credit cards, ‘dope checks,’ coupons, and similar devices are not proper mediums of payment under the Act. They are neither cash nor ‘other facilities’ within the meaning of section 3(m).” 29 CFR § 531.34. The regs also specifically recognize state law that prohibits these kinds of payments.

Various Federal, State, and local legislation requires the payment of wages in cash; prohibits or regulates the issuance of scrip, tokens, credit cards, ‘dope checks’ or coupons; prevents or restricts payment of wages in services or facilities; controls company stores and commissaries; outlaws ‘kickbacks’; restrains assignment and garnishment of wages; and generally governs the calculation of wages and the frequency and manner of paying them. Where such legislation is applicable and does not contravene the requirements of the Act, nothing in the Act, the regulations, or the interpretations announced by the Administrator should be taken to override or nullify the provisions of these laws.

29 CFR §531.26.

As just one example, the Michigan Payment of Wages Act, (remember, I’m in Michigan) says:

Sec. 6.

(1) An employer or agent of an employer may pay wages to an employee by any of the following methods that protect the earnings of the employee from garnishment as required by 15 USC 1673 to the same extent they would be exempt while held by the employer:

(a) Payment in United States currency.

(b) Payment by a negotiable check or draft payable on presentation at a financial institution or other established place of business without discount in United States currency.

(c) Direct deposit or electronic transfer to the employee’s account at a financial institution.

(d) Issuing a payroll debit card that complies with subsection (6).

MCL § 408.476.

One thing before we go any further. First, the DOL’s Field Operations Handbook recognizes and allows direct deposit. But, there are very strict rules at both the federal and state level regarding direct deposit, so talk to an EMPLOYMENT LAWYER before you do this. And don’t rely on your payroll company, they are not lawyers.

But no matter how you pay the wage, wages are not considered paid unless they have been paid free and clear.

Whether in cash or in facilities, ‘wages’ cannot be considered to have been paid by the employer and received by the employee unless they are paid finally and unconditionally or ‘free and clear.’ The wage requirements of the Act will not be met where the employee ‘kicks-back’ directly or indirectly to the employer or to another person for the employer’s benefit the whole or part of the wage delivered to the employee. This is true whether the ‘kick-back’ is made in cash or in other than cash. For example, if it is a requirement of the employer that the employee must provide tools of the trade which will be used in or are specifically required for the performance of the employer’s particular work, there would be a violation of the Act in any workweek when the cost of such tools purchased by the employee cuts into the minimum or overtime wages required to be paid him under the Act. See also in this connection, §531.32(c).

29 CFR §531.35.

So, an employer can take credit for the “‘reasonable cost,’ or ‘fair value’ as determined by the Secretary, of furnishing the employee with board, lodging, or other facilities.” How do you do that? We are not going to get into it. It is going to have to be enough that you know that you need approval to do this and that there are regulations that help define “reasonable cost” and “fair value” and that is it.

And then there are tips. The other Section 3(m) exception to payments in cash are tips. First, who is a tipped employee?

(b) ‘Tipped employee’ is defined in section 3(t) of the Act as follows: Tipped employee means any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.

29 CFR § 532.50.

Then, what is a tip?

A tip is a sum presented by a customer as a gift or gratuity in recognition of some service performed for him. It is to be distinguished from payment of a charge, if any, made for the service. . . .

29 CFR § 531.52.

So the tip credit allows an employer to pay a tipped employee a lower cash wage that is supplemented by tips to equal the applicable minimum wage. DON’T FORGET STATE LAW MINIMUM WAGES WHICH MAY BE HIGHER. In order to take the tip credit, employers have to meet some requirements and there are some prohibitions about what the employer can do with the tips.

The law forbids any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the property of the employer. A tip is the sole property of the tipped employee.

Where an employer does not strictly observe the tip credit provisions of the Act, no tip credit may be claimed and the employees are entitled to receive the full cash minimum wage in addition to retaining tips they may/should have received.

The regs specifically state:

A tip is a sum presented by a customer as a gift or gratuity in recognition of some service performed for him. It is to be distinguished from payment of a charge, if any, made for the service. Whether a tip is to be given, and its amount, are matters determined solely by the customer, who has the right to determine who shall be the recipient of the gratuity. Tips are the property of the employee whether or not the employer has taken a tip credit under section 3(m) of the FLSA. The employer is prohibited from using an employee’s tips, whether or not it has taken a tip credit, for any reason other than that which is statutorily permitted in section 3(m): As a credit against its minimum wage obligations to the employee, or in furtherance of a valid tip pool. Only tips actually received by an employee as money belonging to the employee may be counted in determining whether the person is a ‘tipped employee’ within the meaning of the Act and in applying the provisions of section 3(m) which govern wage credits for tips.

29 CFR 531.52.

And what exactly is tip pooling? Well . . .

[w]here employees practice tip splitting, as where waiters give a portion of their tips to the busboys, both the amounts retained by the waiters and those given the busboys are considered tips of the individuals who retain them, in applying the provisions of section 3(m) and 3(t). Similarly, where an accounting is made to an employer for his information only or in furtherance of a pooling arrangement whereby the employer redistributes the tips to the employees upon some basis to which they have mutually agreed among themselves, the amounts received and retained by each individual as his own are counted as his tips for purposes of the Act. Section 3(m) does not impose a maximum contribution percentage on valid mandatory tip pools, which can only include those employees who customarily and regularly receive tips. However, an employer must notify its employees of any required tip pool contribution amount, may only take a tip credit for the amount of tips each employee ultimately receives, and may not retain any of the employees’ tips for any other purpose.

As you can see, the reg does not specify how a tip pool is to be divided, as long as each employee is informed of the arrangement and the employer does not “retain any of the employees’ tips . . . .”

Next week we start overtime.

About

Steven Palazzolo brings a unique and varied background to the practice of labor and employment law. Prior to attending law school, Steve spent seven years as a shop floor supervisor in both union and non-union food processing plants. Steve also spent 11 years as in-house counsel specializing in labor and employment law for a multi-billion-dollar multinational corporation with extensive manufacturing operations. During this time Steve also supervised a staff of HR professionals. Steve represents employers, emphasizing counseling clients on employee relations issues, policy development, NLRB, ADA, FMLA and international labor relations. Steve has experience in acquisitions, immigration, employee benefits, campaign finance, employment litigation, civil rights and related issues, and has provided counsel to companies in the agricultural, food processing, hospitality, manufacturing and marketing industries in the United States, South and Central America, Europe and Asia. He currently provides counsel to a variety of leading Midwest businesses.

Don’t forget, this blog is for informational purposes only and is not intended to provide legal advice. You should not act based solely on the contents of this blog. The answers to legal questions often depend upon the specific matter at hand. If you have a legal question, contact your lawyer. For more information or a consultation contact spalazzolo@wnj.com.